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Methods of procuring solar power

While there are many advantages to building your own rooftop solar power plant, there is no denying that it does come with a few issues, primarily the initial investment required and (to some extent) the extra effort involved in making sure the plant is working correctly. It would be much more convenient if we could just buy solar power on a per-unit-of-consumption basis the way we do with grid power.

Do such options exist for solar power? Luckily, they do. Subject to government regulations and vendor conditions, a large energy consumer can procure solar power from a solar Independent Power Producer (IPP).

Methods of procuring solar power

There are 3 ways in which an intensive energy consumer can procure solar power

  • 3rd Party Sale using Open Access
  • Group Captive
  • BOO(T) – Build Own Operate (Transfer)
Know more on the various methods of procuring solar power from here

3rd Party Sale using Open Access

Open Access is the freedom given to consumers with connected load greater than 1 MW to choose their own supplier of power i.e., they are not restricted to buying power from the utility and can instead buy power from any 3rd party supplier of power. Therefore, the consumer can contract with a solar IPP to buy power generated from their solar PV plant. A consumer with connected load less than 1 MW may apply for open access; the utility is not obliged to grant open access in such cases, but may do so at its discretion.

Advantages

  • The consumer doesn’t have to invest in the power plant. The consumer only pays for the electricity supplied by the IPP
  • The consumer doesn’t need to maintain the power plant, or be concerned with warranties, quality of components, etc.
  • The consumer is no longer restricted by available rooftop space. The IPP’s solar plant may be much larger than what could have been installed on the consumer’s rooftop
  • Inter-state open access is not allowed. Power has to be procured only from power producers within the state
  • Open access charges in many states are very high
  • Cross subsidy charges are imposed on 3rd party sale
  • There are many delays in getting permissions
  • Congestion and transmission constraints may limit the amount of power that can be procured

Drawbacks

Due to these reasons, 3rd party sale of electricity is witnessed only in a few states, primarily Andhra Pradesh, Karnataka, Maharashtra, and Tamil Nadu.

Due to the various charges and regulations involved in the procurement of power from 3rd party developers, we recommend a careful estimation of the landed cost (total cost to obtain the power at your distribution board) before deciding on procuring solar power from a 3rd party solar IPP.

Group Captive

Under the Group Captive scheme a group of persons/entities holding 26% shares in a RE generating company can each treat the power consumed as captive power provided they jointly consume more than 51% of the RE power generated.

Advantages

  • The consumer can gain economies of scale by investing jointly with other consumers in a very large plant
  • The consumers need to hold only 26% of the equity in the project. If the project is funded with 70% debt and only 30% equity, then the consumers need to jointly hold only 26% of 30% i.e., they invest only 7.8% in the cost of the project
    • Usually, a power plant developer builds the plant under a SPV company and offers 26% equity to the consumer(s). An agreement to buy back the shares on the termination of the procurement contract is also entered into
  • Cross-subsidy charges are not levied as the supplied power is treated as captive consumption
  • As part owners of the plant, consumers are eligible for Renewable Energy Certificates (RECs) and can further monetise Group captive arrangements through sale of RECs
  • Procuring power through group captive arrangements requires open access. Therefore group captive suffers from similar problems to 3rd party sale, such as high open access charges and obtaining permissions, though it does not attract cross-subsidy charges
  • Some organisations may not wish to hold equity in the SPV

Drawbacks

Group captive schemes have been seen primarily in the states of Karnataka, Maharashtra, and Tamil Nadu.

Both 3rd Party Sale and Group Captive mechanisms of procuring power utilise the grid infrastructure to deliver electricity from the power plant to the consumer. The supply of power is therefore affected by any event that affects the grid. Unless the consumer has a dedicated feeder, 3rd party and group captive power will not be supplied during load shedding or grid failure.

BOO(T) – Build Own Operate (Transfer)

In the BOO(T) model, the rooftop system provider installs the plant on the consumer’s rooftop but only sells the power from the plant to the consumer. In this arrangement, the system provider would bear the capital expenditure for the solar unit provided the customer fulfils certain criteria and enters into a power purchase agreement (anywhere between 5-15 years) with the developer. If both parties agree, the ownership of the plant may be transferred to the consumer after a period of time.

Advantages

  • As the system is installed on the consumer’s rooftop, it does not use grid infrastructure to deliver power and is therefore not affected by grid outages or grid congestion
  • Open access is not required and open access charges do not apply as the plant is independent of the grid
  • The amount of power that can be procured is limited by the extent of roof space available for installing the plant
  • The rooftop system provider may require the consumer to have a good credit rating and/or provide payment security
  • The system provider is the owner of the plant and enjoys all incentives provided by the government, such as accelerated depreciation or RECs

Drawbacks

    • The amount of power that can be procured is limited by the extent of roof space available for installing the plant
    • The rooftop system provider may require the consumer to have a good credit rating and/or provide payment security
    • The system provider is the owner of the plant and enjoys all incentives provided by the government, such as accelerated depreciation or RECs
Summary of procurement options by consumer category

The following table gives a quick summary of available options for different categories of consumers

Open Access

Available Options

Customer’s connected load

Customer has dedicated feeder?

BOO System at the Premises

Procure RE Power from 3rd Party/Group Captive

During power cut time

During non power cut time

During power cut time

During non power cut time

> 1 MW

Yes

Yes

Yes

No

No

Yes

No

No

< 1 MW

Yes

No

No

No

As can be seen, power failures dramatically limit the options available to consumers without dedicated feeders if they require solar power to be supplied even during a power failure.

Illustration of charges applicable to each option

This table gives a comparison of the different charges that should be taken into account when calculating the landed cost of the procured power.

Charges

3rd

Party Sale

Group Captive

BOO(T)

Price of Power (at generation point)

3.500

3.500

3.500

Electricity Duty

0.000

0.000

Nil

Electricity Tax

0.000

0.000

Nil

Line Loss

0.100

0.100

Nil

Transmission Charge

0.090

0.090

Nil

Wheeling Charge

0.370

0.370

Nil

Cross Subsidy Surcharge

0.450

0.000

Nil

Banking Charges

0.094

0.094

0.094

Generation Tax

0.100

0.100

0.000

Metering Charge

0.250

0.250

0.000

Substation Maintenance Cost

0.500

0.500

0.500

Effective Cost

5.454

5.004

4.094

Note: The table is only meant to demonstrate how charges apply under different procurement mechanisms The numbers in the table are illustrative only, , and may not be representative of actual charges which vary with jurisdiction, voltage levels, sources of generation, etc. Price of power will also vary based on the method or procurement (they are shown as identical in the table to lay emphasis on the charges.

The table shows the complexity in calculating the effective/landed cost of power under the different options. We recommend a careful evaluation of the charges applicable to you in your jurisdiction before deciding on a method of power procurement

Takeaways
  • An intensive energy consumer who doesn’t wish to invest in a rooftop plant has 3 options for procuring solar power
    • 3rd Party Sale using Open Access
    • Group Captive
    • BOO(T) – Build Own Operate (Transfer)
  • As both 3rd Party Sale and Group Captive use grid infrastructure to deliver power, the purchased power cannot be delivered during power failures unless the consumer has a dedicated feeder
  • 3rd Party Sale and Group Captive mechanisms are witnessed in only few states in India due to difficulty in obtaining permissions and high open access charges
  • BOO(T) is not dependant on grid infrastructure but is limited by the extent of rooftop space available
    • Vendors may also require a good credit rating or payment security from the consumer to be eligible for this model
  • A careful evaluation of all applicable tariffs is recommended to ascertain the landed cost of electricity under each option